Sir, - With Wednesday's Budget Day nearly upon us, I would like to draw your attention to the real dangers that lurk behind the current plans of the Minister for Finance, Mr Ruairi Quinn TD, to increase the stamp duty rate from six per cent to nine per cent on sales of second hand houses from £150,000 upwards.
The IAVI (Irish Auctioneers and Valuers Institute) had long sought the abolition of Residential Property Tax (RPT) and we welcome the Minister's announcement that it is to be abolished from April 5th, 1997.
However, we strongly regret that the Minister is now proposing a massive hike in stamp duty on homes in excess of £150,000 and urge him to reconsider putting in place a measure which will discriminate against Dublin property owners/buyers to an even greater degree than RPT.
The modest annual charges for water services on most citizens are to be abolished, but is it at the same time fair and reasonable to increase stamp duty to the equivalent of 267 years water charges at £70 per year on the purchase of a single home valued at £200,000 - a figure which will by no means buy a mansion of the "wealthy" classes.
The public may not fully realise the effects the increased stamp duty rate will have for both future home buyers and the residential property market itself, should the tax hike come into law as proposed under the new Finance Bill.
The Minister has suggested that the stamp duty increase will dampen down prices in the entire residential property market. This is not the case. Price increases move in an upward direction within the various market sectors; it is the prices achieved for less expensive homes which fuel increases at higher levels, and not the other way round.
The Minister's planned move will actually lead to higher prices in the lower to middle brackets. Fewer people will be willing to trade up to the supply of homes in the £100,000 to £150,000 and lower ranges will be reduced. This will create greater competition for those homes that do come on the market and consequently push up prices. The impact of the proposal could, therefore, be the exact opposite to that which the Government seeks by increasing rather than reducing price levels in the lower to middle price brackets.
The higher stamp duty rate could also lead to tax evasion with unfair pressure put on professionals, such as solicitors and estate agents, to assist or collude due to a tax differential of £4,500 arising at the suggested new threshold level.
The proposed nine per cent stamp duty rate must be compared to that of our nearest neighbour and rival economy (the United Kingdom) where the rate is only one per cent and applies solely to properties above £60,000. Such a differential will actively discourage inward investment to Ireland, as well as acting as an unnecessary fiscal barrier to returning successful Irish emigrants.
The buoyancy in the property market has existed now for 18 months and has had no discernible impact on the country's inflation rate. Indeed, in one quarter when Dublin second hand homes rose by 11 per cent, inflation was just 1.5 per cent p.a. Thus, there is no justification for the current move based on inflationary fears. On the contrary, the proposed added cost of purchasing a home could, in fact, directly add to inflation.
Finally, the family home is an unacceptable target for additional taxation, and this Institute strongly urges the Minister for Finance to reconsider any planned increases. - Yours, etc.,
Chief Executive
Irish Auctioneers and
Valuers Institute,
38 Merrion Square,
Dublin 2.